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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-03-01 · 148 added, 125 removed, 357 unchanged (43% of the section changed)

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Substantially all of our assets are held by the Company’s subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies in the United States (U.S.) continuously operating under the same name.

With $15.8 billion in assets and $34.6 billion in assets under management (AUM) and assets under administration (AUA) at December 31, 2021, WSFS Bank is the oldest and largest locally-managed bank and trust company headquartered in the Delaware and Greater Philadelphia region.

With $19.9 billion in assets and $64.5 billion in assets under management (AUM) and assets under administration (AUA) at December 31, 2022, WSFS Bank is the oldest and largest locally-managed bank and trust company headquartered in the Greater Philadelphia and Delaware region.

As a federal savings bank that was formerly chartered as a state mutual savings bank, WSFS Bank enjoys a broader scope of permissible activities than most other financial institutions.

A fixture in the community, WSFS Bank has been in operation for more than 190 years.

In addition to its focus on stellar customer experiences, WSFS Bank has continued to fuel growth and remain a leader in our community.

In addition to our focus on stellar customer experience, we have continued to fuel growth and remain a leader in our community.

We are a relationship-focused, locally-managed, community banking institution.

Our mission is simple:

“We Stand for Service.” Our strategy of “Engaged Associates, living our culture, making a better life for all we serve” focuses on exceeding customer expectations, delivering stellar experiences and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

As of December 31, 2021, we had six consolidated subsidiaries:

WSFS Bank, WSFS Wealth Management, LLC (Powdermill ® ), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress), Christiana Trust Company of Delaware ® (Christiana Trust DE) and WSFS SPE Services, LLC.

We also had one unconsolidated subsidiary, WSFS Capital Trust III.

“We Stand for Service.” Our strategy of “Engaged Associates, living our culture, enriching the communities we serve” focuses on exceeding customer expectations, delivering stellar experiences and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

As of December 31, 2022, we had seven consolidated subsidiaries:

WSFS Bank, WSFS Wealth Management, LLC (Powdermill ® ), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress), WSFS SPE Services, LLC, The Bryn Mawr Trust Company of Delaware (BMT-DE), and 601 Perkasie, LLC.

We also had three unconsolidated subsidiaries, WSFS Capital Trust III, Royal Bancshares Capital Trust I, and Royal Bancshares Capital Trust II.

WSFS Bank had two wholly-owned subsidiaries:

Beneficial Equipment Finance Corporation (BEFC) and 1832 Holdings, Inc., and one majority-owned subsidiary, NewLane Finance Company (NewLane Finance ® ).

On January 1, 2022, WSFS and the Bank acquired certain subsidiaries in the merger of Bryn Mawr Bank Corporation (BMBC) with and into WSFS, and the merger of The Bryn Mawr Trust Company with and into the Bank (collectively, the BMBC Merger), pursuant to the agreement and plan of merger, by and between WSFS and BMBC, dated as of March 9, 2021 (the BMBC Merger Agreement) that are not named herein as they are not integral or significant to our business.

On April 1, 2022, WSFS completed the merger of Christiana Trust Company of Delaware ® and BMT-DE.

The combined organization will retain and operate under The Bryn Mawr Trust Company of Delaware name.

Additionally on April 1, 2022, Bryn Mawr Equipment Finance, Inc.

merged with and into BEFC.

On April 29, 2022, KCMI Capital, Inc.

(KCMI), a specialized commercial lending unit acquired in the BMBC merger and not core to our overall lending strategy, was sold at par value for $55.5 million.

Finally, on June 30, 2022, the business of BMT Insurance Advisors (BMTIA), was sold to Patriot Growth Services, LLC.

On January 1, 2023, WSFS completed the merger and brand conversion of West Capital and Cypress and has renamed the combined entity Bryn Mawr Capital Management, LLC.

Bryn Mawr Capital Management, LLC is registered as an investment advisor with the U.S.

Securities and Exchange Commission and is a wholly-owned subsidiary of WSFS.

Our banking business had a total loan and lease portfolio of $11.9 billion as of December 31, 2022, which was funded primarily through commercial relationships and retail and customer generated deposits.

We have built a $9.3 billion commercial loan and lease portfolio by recruiting seasoned commercial lenders in our markets, offering the high level of service and flexibility typically associated with a community bank and through acquisitions.

We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches, and mortgage and title services in collaboration with WSFS Mortgage ® .

WSFS Mortgage ® is a mortgage banking company and abstract and title company specializing in a variety of residential mortgage and refinancing solutions.

Our leasing business is conducted by NewLane Finance ® .

NewLane Finance ® originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas.

We also offer a broad variety of consumer loan products and retail securities brokerage through our retail branches, in addition to mortgage and title services through our branches and WSFS Mortgage ® , our mortgage banking company specializing in a variety of residential mortgage and refinancing solutions.

Our leasing business, conducted by NewLane Finance ® , originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas.

In addition, NewLane Finance ® offers captive insurance through its subsidiary, Prime Protect.

As of December 31, 2021, Cash Connect ® manages approximately $1.7 billion in total cash and services approximately 27,400 non-bank ATMs and approximately 6,300 smart safes nationwide.

Our Cash Connect ® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry.

Cash Connect ® services non-bank and WSFS-branded ATMs and smart safes nationwide, and manages approximately $1.7 billion in total cash and services approximately 26,300 non-bank ATMs and 7,500 smart safes nationwide.

Cash Connect ® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, ATM processing equipment sales and deposit safe cash logistics.

As of December 31, 2021, Cash Connect ® also supports over 600 owned and branded ATMs for WSFS Bank, which has one of the largest branded ATM networks in our market.

Cash Connect ® also supports approximately 650 branded ATMs for WSFS Bank Customers, which is one of the largest branded ATM networks in our market.

Our Wealth Management business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate and institutional clients through multiple integrated businesses.

Combined, these businesses had $64.5 billion of AUM and AUA at December 31, 2022.

WSFS Wealth ® Investments provides financial advisory services along with insurance and brokerage products.

Cypress, a registered investment adviser, is a fee-only wealth management firm managing a “balanced” investment style portfolio focused on preservation of capital and generating current income.

West Capital, a registered investment adviser, is a fee-only wealth management firm operating under a multi-family office philosophy to provide customized solutions to institutions and high-net-worth individuals.

The trust division of WSFS, comprised of WSFS Institutional Services ® and Christiana Trust DE, provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional and corporate clients and special purpose vehicles.

Christiana Trust DE, a subsidiary of WSFS, provides personal trust and fiduciary services to families and individuals across the U.S.

Bryn Mawr Trust ® is our predominant Private Wealth Management brand, providing advisory, investment management and trustee services to institutions, affluent and high-net-worth individuals.

The Bryn Mawr Trust Company of Delaware, formed by the merger of BMT-DE and Christiana Trust DE on April 1, 2022, provides personal trust and fiduciary services to families and individuals across the U.S.

and internationally.

WSFS Institutional Services ® provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional, corporate clients and special purpose vehicles.

Private Wealth Management serves high-net-worth clients and institutions by providing trustee and advisory services, financial planning, customized investment strategies, brokerage products such as annuities and traditional banking services such as credit and deposit products tailored to its clientele.

Private Wealth Management includes businesses that operate under the bank’s charter, through a broker/dealer and as a registered investment advisor (RIA).

It generates revenue through fee-only arrangements, net interest income and other fee-only services such as estate administration, trust tax planning and custody.

Powdermill ® is a multi-family office specializing in providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach.

WSFS Wealth Client Management serves high-net-worth clients by delivering credit and deposit products and partnering with other Wealth Management businesses to provide comprehensive solutions to clients.

As of December 31, 2022, we service our customers primarily from our 119 offices located in Pennsylvania (61), Delaware (39), New Jersey (17) Virginia (1) and Nevada (1), our ATM network, our website at www.wsfsbank.com , and our mobile apps.

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Notable items in 2022 include the following:

• Bryn Mawr Trust Acquisition

◦ We recorded $13.0 million of corporate development and restructuring expenses during the year ended December 31, 2021 primarily related to our merger with Bryn Mawr Bank Corporation (BMBC), a Pennsylvania corporation and the parent holding company of The Bryn Mawr Trust Company, a Pennsylvania chartered bank and wholly owned subsidiary of BMBC.

Throughout this document, we refer to these acquired entities collectively as “Bryn Mawr Trust.”

◦ The merger was completed on January 1, 2022 with the purchase price consideration of $908 million to acquire or assume the following (at carrying value):

▪ Total assets of $5.0 billion, including $3.5 billion in loans and leases,

▪ Total liabilities of $4.4 billion, including $4.1 billion in deposits, and

▪ Total AUM and AUA of $23.6 billion.

◦ Our bank technology, branding and branch conversion is scheduled to occur later in the first quarter of 2022, with our Trust and Wealth integration expected to follow in late 2022 or early 2023.

• BMBC Merger

◦ The merger was completed on January 1, 2022 with the purchase price consideration of $908.0 million and $497.2 million in net assets acquired resulted in $410.8 million of goodwill recognized, as adjusted.

◦ The BMBC Merger initially added $3.5 billion of net loans and leases, $4.1 billion of deposits, and $23.6 billion of AUM and AUA.

◦ We recorded $65.2 million of corporate development and restructuring expenses during the year ended December 31, 2022, primarily related to the BMBC Merger.

• Balance Sheet

◦ On June 15, 2021, WSFS completed the redemption of $100.0 million in aggregate principal amount of our 4.50% fixed-to-floating rate senior notes due 2026 (the 2026 Notes).

We recorded a $1.1 million loss of debt extinguishment to recognize the remaining unamortized debt issue costs associated with these notes.

◦ During the year ended December 31, 2021, our balance sheet was significantly impacted by continued high levels of excess liquidity due to deposit growth stemming from strong Customer relationships across all business lines coupled with elevated loan payoffs.

We used a portion of the excess liquidity to purchase $3.5 billion of investment securities, available-for-sale, and to pay down our borrowings.

◦ During the year ended December 31, 2022, $1.1 billion of available-for-sale (AFS) mortgage-backed securities (MBS), or 19% of the AFS portfolio, were designated as held-to-maturity (HTM) to limit the capital impact from the rising interest rate environment.

• Credit Metrics

◦ There was a reduction in the allowance for credit losses (ACL) of $134.3 million during the year ended December 31, 2021, as a result of the future recovery in our economic forecasts used in the ACL model and improved credit quality metrics with notable declines in our problem assets and delinquencies.

◦ There was an increase in the allowance for credit losses (ACL) of $57.4 million during the year ended December 31, 2022, primarily due to an initial ACL of $49.6 million recorded in connection with the BMBC Merger.

The initial $49.6 million ACL recorded includes $23.5 million related to non-purchase credit deteriorated (PCD) loans, or the initial provision for credit loss recorded, and $26.1 million related to PCD loans, which did not have an initial income statement impact, but adjusted the amortized cost basis of the loans at acquisition (i.e., a balance sheet gross-up).

See “Results of Operations - Provision/Allowance for Credit Losses (ACL)” for further information.

• Other Notable Items

◦ During 2021, we recorded a $4.4 million net gain on the liquidation of our investment in Social Finance, Inc.

We used $1.0 million of the proceeds to make a contribution to the WSFS CARES Foundation to further fund support to our expanded communities.

◦ During the third quarter of 2021, we launched our strategic partnership with Upstart Holdings, Inc.

(Upstart), a leading white label lending-as-a-service platform provider specializing in risk-based priced unsecured consumer loans.

◦ In October 2021, Michelle L.

Burroughs joined the Bank as Vice President, Director of Diversity, Equity and Inclusion (DE&I), supporting WSFS in creating and delivering a work environment designed to foster a culture of inclusion and ensure the long-term sustainability of the Company’s DE&I efforts.

◦ During 2021, we resolved all outstanding legal matters associated with Nature's Healing Trust and Charter Oak.

In the fourth quarter of 2021, we recognized $15.0 million legal settlement recovery associated with Charter Oak.

◦ During 2022, WSFS repurchased 4,151,117 shares of common stock under the Company's share repurchase program at an average price of $46.78 per share, for an aggregate purchase price of $194.2 million

◦ KCMI and its loan portfolio was sold at par value for $55.5 million.

◦ The business of BMTIA was sold to Patriot Growth Insurance Services, LLC.

◦ We recognized a $6.0 million unrealized gain on our equity investment in cred.ai, a Philadelphia-based fintech partner that provides a mobile-based everyday card spending experience.

◦ We contributed a total of $3.0 million to the WSFS CARES Foundation during 2022.

FINANCIAL CONDITION

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These increases are primarily comprised of the following (in descending order of magnitude):

• Investment securities, available-for-sale:

Investment securities, available for sale increased $2.7 billion, or 106%, primarily due to $3.5 billion in purchases partially offset by repayments of $697.5 million, decreased market-values on available-for-sale securities of $93.8 million, and sales of $14.1 million.

• Loans and leases, net of allowance:

Loans and leases, net of allowance , decreased $1.0 billion, or 11%, reflecting a $782.4 million decline in commercial and industrial loans that included a $719.7 million decrease due to forgiveness of PPP loans and higher loan payoffs, a $227.8 million decline in residential loans, largely due to non-relationship run-off portfolios acquired through the Beneficial Bancorp, Inc.

(Beneficial) acquisition, and a $204.6 million decline in commercial mortgage loans due to higher loan payoffs.

Partially offsetting these decreases were $103.4 million of growth in our commercial small business leases portfolio, and a reduction of $134.3 million in our allowance for credit losses as described above.

• Cash, cash equivalents, and restricted cash:

Cash, cash equivalents, and restricted cash decreased $121.8 million, or 7%, primarily reflecting our purchases of available-for-sale investment securities, as noted above, partially offset by elevated customer deposits due to strong relationships across all of our lending and fee based business lines.

• Loans, held for sale:

Loans, held for sale are recorded at fair value and decreased $84.2 million, or 43%, driven by a combination of lower origination volume and higher loans sales in our mortgage banking business.

• Investment securities, held-to-maturity:

Investment securities, held-to-maturity decreased $21.1 million, or 19%, primarily reflecting repayments, maturities and calls during the year.

• Net loans and leases, excluding loans held for sale, increased $4.0 billion, primarily driven by the $3.5 billion of loans and leases acquired in the BMBC Merger and an increase of $457.0 million from our consumer partnerships, partially offset by the initial $49.6 million ACL recorded in connection with the BMBC Merger .

• Goodwill and intangible assets increased $410.8 million and $54.2 million, respectively, primarily due to the BMBC Merger.

See Notes 3 and 11 to the Consolidated Financial Statements for additional information.

• Other assets increased $399.1 million primarily due to a $201.6 million increase on our tax asset related to unrealized losses on AFS securities and $153.6 million of BMT acquired assets.

• Total cash and cash equivalents decreased $695.7 million, primarily due to decreased deposits and increased lending activity, offset by cash acquired in the BMBC Merger.

• Total investment securities decreased $91.3 million:

◦ Investment securities, held-to-maturity increased $1.0 billion primarily due to the designation of $1.1 billion (book value) of AFS MBS to HTM to limit the capital impact from the rising interest rate environment.

◦ Investment securities, available-for-sale decreased $1.1 billion, primarily due to the designation of AFS MBS to HTM as mentioned above, repayments of $1.0 billion and decreased market values on available-for-sale securities of $696.9 million.

These decreases were partially offset by $1.2 billion in purchases and $500.4 million acquired in the BMBC merger.

• Loans held for sale decreased $70.4 million during the twelve months ended December 31, 2022 driven by a combination of lower origination volume and higher loans sales in our mortgage banking business during the year ended December 31, 2022.

Total liabilities increased $3.9 billion, or 28%, to $17.7 billion at December 31, 2022 compared to the prior year, primarily comprised of the following (in descending order of magnitude):

• Total Deposits:

Total deposits increased $1.4 billion, or 12%, to $13.2 billion, primarily due to an increase in customer funding, reflecting continued elevated deposits from strong customer relationships across all lending and fee based business lines, including our trust line of business in Wealth Management, which had $1.2 billion in deposits as of December 31, 2021, an increase of $750.8 million from the prior year.

The ratio of net loans and leases (including loans held for sale) to customer deposits was 60% at December 31, 2021 reflecting significant liquidity capacity.

• Senior debt:

Senior debt decreased $98.7 million due to the redemption of the 2026 Notes, as described above.

• Other liabilities:

Other liabilities increased $14.4 million, primarily due to $17.7 million reflecting the timing of settlements for debt security trades, partially offset by a decrease of $5.8 million in certain retirement plan liabilities.

Stockholders’ equity increased $147.4 million to $1.9 billion at December 31, 2021 compared to $1.8 billion at December 31, 2020.

The increase was primarily due to earnings of $271.4 million during the year, partially offset by $93.8 million in unfavorable market-value changes on available-for-sale securities, $24.2 million in common stock dividends paid and $13.3 million related to share repurchases during 2021.

• Total deposits increased $3.0 billion, primarily driven by $4.1 billion of deposits assumed in the BMBC Merger, partially offset by declines due to a reduction in customer balances spread across most business lines.

• Other liabilities increased $417.2 million primarily due to a net increase of $298.5 million in collateral held on derivatives and derivative liabilities driven by rising interest rates and $124.6 million of BMT acquired liabilities, partially offset by $34.5 million lower accrued expenses reflecting the timing of settlement for debt security trades.

• Federal Home Loan Bank advances of $350.0 million were held over year end compared to none at December 31, 2021.

• Senior and subordinated debt increased $100.2 million due to the addition of subordinated notes assumed in the BMBC Merger.

Stockholders’ equity increased $266.0 million to $2.2 billion at December 31, 2022 compared to the prior year.

The increase was primarily due to $908.0 million of WSFS common shares issued in connection with the BMBC Merger and earnings of $222.4 million during the year, partially offset by a decrease of $638.1 million in accumulated other comprehensive loss from market value decreases on investment securities resulting from the current rising interest rate environment, and significant levels of capital return to shareholders including $200.1 million from the repurchase of shares of common stock under our stock repurchase plan and shares withheld to cover tax liabilities, and the payment of dividends on our common stock of $35.7 million.

We repurchased 4,151,117 and 267,309 shares of our common stock in 2022 and 2021, respectively.

We held 14,310,085 shares and 10,086,936 shares of our common stock as treasury shares at December 31, 2022 and 2021, respectively.

For further information on our regulatory capital requirements, refer to our Capital Resources discussion below.

LIQUIDITY AND CAPITAL RESOURCES

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Also, liquidity risk management is a primary area of examination by the banking regulators.

Funding sources to support growth and meet our liquidity needs include cash from operations, commercial and retail deposit programs, loan repayments, FHLB borrowings, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues.

Funding sources to support growth and meet our liquidity needs include cash from operations, commercial, consumer, wealth and trust deposit programs, loan repayments, FHLB borrowings, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues.

In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration mortgage-backed securities, that provide a near-continuous source of cash flow to meet current cash needs, or can be sold to meet larger discrete needs for cash.

We believe these sources are sufficient to meet our funding needs as well as maintain required and prudent levels of liquidity over the next twelve months and beyond.

During the year ended December 31, 2021, cash, cash equivalents and restricted cash decreased $121.8 million to $1.5 billion from $1.7 billion as of December 31, 2020.

As of December 31, 2022, the Corporation has $0.8 billion in cash, cash equivalents, and restricted cash.

Additionally, the maximum borrowing capacity with the FHLB was $4.9 billion with an unused borrowing availability of $4.6 billion.

Borrowing availability at the Federal Reserve Discount Window was $736.2 million, and borrowing availability through the overnight fed funds lines totaled $1.0 billion.

During the year ended December 31, 2022, cash, cash equivalents and restricted cash decreased $0.7 billion to $0.8 billion from $1.5 billion as of December 31, 2021.

Cash provided by operating activities was $480.9 million, primarily reflecting the cash impact of earnings.

Cash used in investing activities was $1.5 billion primarily due to net purchases of available-for-sale debt securities of $2.8 billion partially offset by $1.3 billion from decreased lending activity related to PPP loan forgiveness and meaningful payoffs and paydowns in the commercial loan portfolio.

Cash provided by financing activities was $1.2 billion, primarily due to a $1.4 billion net increase in deposits, as a result of the increase in customer funding discussed above, partially offset by the redemption of $100.0 million in aggregate principal amount of the 2026 Notes, liquidity management and common stock dividends of $24.2 million, $13.3 million for repurchases of common stock under the previously announced stock repurchase plan, and $6.6 million for repayment of FHLB advances due to the termination of fixed rate FHLB term advances as part of our routine balance sheet management.

Cash used for investing activities was $137.4 million primarily due to purchases of loans held for investment of $393.2 million, and net purchases of available-for-sale debt securities of $202.4 million.

These outflows were offset by $573.7 million of net cash from the BMBC Merger.

Cash used by financing activities was $1.0 billion, primarily due to a $1.2 billion net decrease in deposits, $200.1 million for repurchases of common stock under the previously announced stock repurchase plan, and common stock dividends of $35.7 million, partially offset by $350.0 million of FHLB advances due to the receipt of fixed rate FHLB term advances as part of our routine balance sheet management.

Our primary cash contractual obligations relate to operating leases, long-term debt, credit obligations, and data processing.

At December 31, 2021, we had $250.5 million in total contractual payments for ongoing leases have remaining lease terms of less than 1 year to 40 years, which includes renewal options that are exercised at our discretion.

At December 31, 2022, we had $241.3 million in total contractual payments for ongoing leases that have remaining lease terms of less than one year to 39 years, which includes renewal options that are exercised at our discretion.

For additional information on our operating leases see Note 10 to the Consolidated Financial Statements.

At December 31, 2021, we had no FHLB advances, and obligations for principal payments on long-term debt included $67.0 million for our trust preferred borrowings, due June 1, 2035, and $150.0 million for our senior debt, due December 15, 2030.

We are also contractually obligated make interest payments on our long-term debt through their respective maturities.

At December 31, 2022, we had $350.0 million of FHLB advances, and obligations for principal payments on long-term debt included $67.0 million for our trust preferred borrowings, due June 1, 2035, and $150.0 million for our senior debt, due December 15, 2030.

In connection with the BMBC Merger, we assumed debt in the form of $30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 and $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027.

We also acquired Royal Bancshares Capital Trust I (Trust I) and Royal Bancshares Capital Trust II (Trust II) (collectively, the Trusts), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests.

Although WSFS owns an aggregate of $774.0 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Company’s Consolidated Financial Statements.

Inclusive of the fair value marks, WSFS assumed junior subordinated debentures owed to the Trusts with a carrying value of $11.7 million each, totaling $23.4 million.

The Company records its investments in the Trusts’ common securities of $387.0 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

The Company has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

We are also contractually obligated to make interest payments on our long-term debt through their respective maturities.

For additional information regarding long-term debt, see Note 13 to the Consolidated Financial Statements.

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For additional information regarding commitments to extend credit, see Note 18 to the Consolidated Financial Statements.

In 2022, we plan to invest approximately $15 million in our Delivery Transformation initiative to increase adoption and usage of digital channels aligned with our strategy.

Our organization is committed to product and service innovation as a means to drive growth and to stay ahead of changing customer demands and emerging competition.

We are focused on developing and maintaining a strong “culture of innovation” that solicits, captures, prioritizes and executes innovation initiatives, including feedback from our customers, as well as leveraging technology from product creation to process improvements.

NONPERFORMING ASSETS

Nonperforming assets (NPAs) include nonaccruing loans, other real estate owned (OREO) and restructured loans.

Nonaccruing loans are those on which the accrual of interest has ceased.

Nonperforming assets include nonaccruing loans, OREO and restructured loans.

Nonaccruing loans are those on which we no longer accrue interest.

Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest.

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Total nonaccruing loans 22,802 16,609

Other real estate owned (OREO) 2,320 3,061

Other real estate owned 833 2,320

Restructured loans (1)(6)

19,737 14,204

Total nonperforming assets (NPAs) $ 33,133 $ 60,508

Total nonperforming assets $ 43,372 $ 33,133

Past due loans:

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(6) Balance excludes COVID-19 modifications.

Nonperforming assets decreased $27.4 million between December 31, 2020 and December 31, 2021.

Non-performing loans decreased $25.3 million, primarily from $15.8 million of net collections and charge-off activity on three commercial and industrial relationships during the fourth quarter of 2021 and the payoff of one commercial real estate relationship of approximately $15.1 million in the first quarter.

Restructured loans at December 31, 2021 decreased by $1.3 million compared to December 31, 2020.

The ratio of nonperforming assets to total assets decreased from 0.42% at December 31, 2020 to 0.21% at December 31, 2021.

The following table provides an analysis of the change in the balance of nonperforming assets during the last two years:

Nonperforming assets increased $10.2 million between December 31, 2021 and December 31, 2022.

This increase was primarily due to the transfer in of one commercial relationship totaling $5.5 million and one CRE relationship totaling $2.6 million during the period.

These inflows were partially offset by a partial charge-off on the CRE relationship of $0.5 million, several smaller payoffs and the continued collection of principal payments on the majority of these loans.

The ratio of nonperforming assets to total assets slightly increased from 0.21% at December 31, 2021 to 0.22% at December 31, 2022.

The following table summarizes the changes in nonperforming assets during the periods indicated:

Year Ended December 31,

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The timely identification of problem loans is a key element in our strategy to manage our loan portfolio.

Problem loans are all criticized, classified and nonperforming loans and other real estate owned.

Timely identification enables us to take appropriate action and accordingly, minimize losses.

An asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets.

In general, this system utilizes guidelines established by federal regulation.

In general, this system uses guidelines established by federal regulation.

RESULTS OF OPERATIONS

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2022 compared with 2021

We recorded net income attributable to WSFS of $271.4 million, or $5.69 per diluted common share, for the year ended December 31, 2021, an increase of $156.7 million compared to $114.8 million, or $2.27 per diluted common share, for the year ended December 31, 2020.

• Net interest income for the year ended December 31, 2021 was $433.6 million, a decrease of $32.3 million compared to 2020, primarily due to lower purchase accounting accretion, the lower interest rate environment and balance sheet mix, as well as the impact of PPP loans.

We recorded net income attributable to WSFS of $222.4 million, or $3.49 per diluted common share, for the year ended December 31, 2022, a decrease of $49.1 million compared to $271.4 million, or $5.69 per diluted common share, for the year ended December 31, 2021.

• Net interest income for the year ended December 31, 2022 was $662.9 million, an increase of $229.2 million compared to 2021, primarily due to an increase from the balance sheet size and mix from the BMBC Merger and the benefits of our asset-sensitive balance sheet, offset by lower purchase accounting accretion and the impact of PPP loans.

See “Net Interest Income” for further information.

• Our provision for credit losses decreased $270.3 million in 2021, primarily due to positive impacts in the economic forecast included in our CECL modeling and improved credit quality metrics reflecting overall declines in problem assets and delinquencies, partially offset by new loan originations.

• Our provision for credit losses increased $165.2 million in 2022, primarily due to the release of ACL reserves that occurred in 2021 as a result of positive economic forecasts following the impact of the COVID-19 pandemic and the initial provision for credit losses recorded in connection with the BMBC Merger.

See “Provision/Allowance for Credit Losses” for further information.

• Noninterest income decreased $15.5 million in 2021, primarily due to the impact from the sale of Visa Class B shares in the prior year, lower securities gains, a decline in our mortgage banking business, and lower interchange fees due to the impact of the Durbin Amendment on 2021 results.

These decreases were partially offset by higher revenues from Wealth Management, other income and traditional banking fees, and total net gains on equity investments.

• Noninterest income increased $74.7 million in 2022, primarily due to increased Wealth Management revenue that is primarily attributable to the BMBC Merger, Cash Connect ® , higher other banking fees, and capital markets income, partially offset by a decline in our mortgage banking business.

See “Noninterest Income” for further information.

• Noninterest expense increased $9.7 million in 2021, primarily reflecting an increase in salaries and benefits due to higher salaries and franchise growth, higher net corporate development and restructuring costs related to our acquisition of Bryn Mawr Trust and higher equipment expense, partially offset by the Charter Oak legal settlement recovery in December 2021, and decreases in loan workout and other credit costs, professional fees, and other operating expenses.

• Noninterest expense increased $195.8 million in 2022, primarily due to higher costs after the BMBC Merger.

These increases include salaries and benefits, net corporate development and restructuring costs, variable operating costs, and equipment, occupancy, and intangibles expense.

In addition, 2021 included the previously disclosed Charter Oak legal settlement recovery.

See “Noninterest Expense” for further information.

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Trust preferred borrowings 90,337 3,482 3.85 67,011 1,274 1.90

Senior debt 192,243 6,497 3.38 108,420 4,998 4.61

Senior and subordinated debt 248,389 8,246 3.32 192,243 6,497 3.38

Other borrowed funds (4)

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(4) Includes federal funds purchased.

Net interest income decreased $32.3 million, or 7%, to $433.6 million in 2021, from 2020 primarily due to a $20.9 million decrease in purchase accounting accretion, a net decline of $8.2 million due to a full year impact of the lower rate environment and change in balance sheet mix from optimization of excess customer liquidity, and $3.2 million lower PPP income.

Net interest margin decreased 73 bps to 3.23% in 2021 from 3.96% in 2020.

The decrease was primarily due to a 59 bps net decline from the lower interest rate environment and balance sheet mix and 23 bps from lower purchase accounting accretion, partially offset by 9 bps from the impact of PPP loans.

Net interest income increased $229.2 million, or 53%, to $662.9 million in 2022, compared to 2021 primarily due to a $191.2 million increase from the balance sheet size and mix due to the BMBC Merger and $71.9 million from the benefits of our asset-sensitive balance sheet.

Offsetting these increases were $18.5 million lower PPP income and a $15.4 million decrease in purchase accounting accretion.

Net interest margin increased 48 bps to 3.71% in 2022 from 3.23% in 2021.

The increase was primarily due to 47 bps from the benefits of our asset-sensitive balance sheet and 22 bps increase from balance sheet size and mix due to the BMBC Merger, partially offset by 15 bps from lower purchase accounting accretion and 6 bps from the impact of PPP loans in the prior year.

The following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated.

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Trust preferred borrowings 559 1,649 2,208

Senior debt 3,098 (1,599) 1,499

Senior and subordinated debt 1,866 (117) 1,749

Other borrowed funds 51 406 457

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We maintain an ACL at an appropriate level based on our assessment of estimable and probable losses in the loan portfolio, which we evaluate in accordance with applicable accounting principles, as discussed further in “Nonperforming Assets.” Our evaluation is based on a review of the portfolio and requires significant, complex and difficult judgments.

For the year ended December 31, 2021, we recorded a recovery of credit losses of $117.1 million, a net change of $270.3 million, compared to the provision for credit losses of $153.2 million in 2020.

For the year ended December 31, 2022, we recorded a provision for credit losses of $48.1 million, a net change of $165.2 million, compared to the recovery of credit losses of $117.1 million in 2021.

The increase was primarily due to the release of ACL reserves in 2021 from positive economic forecasts following the impact of the COVID-19 pandemic and the initial provision for credit losses of $23.5 million recorded in connection with the BMBC Merger.

The ACL was $151.9 million at December 31, 2022 compared to $94.5 million at December 31, 2021.

The decrease of the ACL was due to positive impacts in our economic outlook from our ACL modeling and improved credit quality metrics reflecting overall declines in problem assets and delinquencies, offset by new loan originations.

The increase of the ACL was primarily due to an initial ACL of $49.6 million recorded in connection with the BMBC Merger.

The initial $49.6 million ACL recorded includes $23.5 million related to non-PCD loans, or the initial provision for credit loss recorded, and $26.1 million related to PCD loans, which does not have an initial income statement impact, but adjusts the amortized cost basis of the loans at acquisition (i.e., a balance sheet gross-up).

The ratio of allowance for credit losses to total loans and leases was 1.17% at December 31, 2022 and 1.19% at December 31, 2021.

The following chart details the changes in the ACL from December 31, 2020 to December 31, 2021:

(1) Other includes changes that can affect future cash flows that impact ACL, such as changes to maturity dates and payment schedules.

The following tables detail the allocation of the ACL and show our net charge-offs (recoveries) by portfolio category:

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Average loan balance $ 2,463,933 $ 1,337,883 $ 1,994,995 $ 775,246 $ 628,411 $ 1,134,569 $ 8,335,037

Ratio of net charge-offs (recoveries) to average gross loans 0.21 % 0.01 % NMF (0.01) % NMF 0.14 % 0.09 %

Ratio of net charge-offs (recoveries) to average gross loans 0.60 % (0.01) % (0.01) % 0.32 % (0.13) % 0.08 % 0.21 %

(1) Includes commercial small business leases and PPP loans.

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Noninterest Income

Noninterest income decreased $15.5 million to $185.5 million in 2021 from $201.0 million in 2020.

This decrease reflects a decrease in Realized (loss) gain on equity investments, net due to the $22.1 million gain on Visa Class B shares that occurred in June 2020, an $8.7 million decrease in Securities gains, net, a $7.0 million decrease in mortgage banking activities due to a decline in volume compared to the historically higher levels in the prior year, and a $5.5 million decrease in Credit/debit card and ATM income primarily as a result of the Durbin Amendment enacted on July 1, 2020.

Partially offsetting these decreases were increases of $13.4 million in Wealth Management revenues driven by our institutional trust business, $5.7 million from other income, primarily from Cash Connect ® and gains on the sale of SBA loans, $5.1 million from higher traditional banking fees, and $4.4 million of net gains from the sale of our SoFi investment.

Noninterest income increased $74.7 million to $260.1 million in 2022 from $185.5 million in 2021.

This increase reflects a $61.6 million increase in Wealth Management revenue, of which $55.9 million was attributable to the combination with Bryn Mawr Trust;

$12.7 million from Cash Connect ® driven by the rising rate environment and continued growth in the smart safe space;

$12.5 million in other banking fees, including fees associated with our consumer lending partnerships, gain on sale of SBA loans and traditional bank service fees;

and $7.9 million in capital markets income.

The increase was partially offset by a $15.9 million decrease in mortgage banking activities primarily resulting from the decline in refinancing originations compared to the historically higher levels in 2021.

Our diverse fee-based businesses support sustainability of noninterest income through economic cycles.

Noninterest Expenses

Noninterest expense increased $195.8 million to $574.3 million in 2022 from $378.5 million in 2021.

The increase was primarily due to a $19.9 million increase in Salaries, benefits and other compensation as a result of higher salaries and incentive compensation due to franchise growth, an $8.2 million increase in net corporate development and restructuring costs related to our acquisition of Bryn Mawr Trust, and a $5.2 million increase in Equipment expense including higher third-party software expenses related to our ongoing delivery transformation initiatives.

These increases were partially offset by the $15.0 million recovery of legal settlement previously mentioned, a $6.2 million decrease in Loan workout and other credit costs due to the release of reserves on our unfunded commitments driven by improved credit metrics and higher loan workout costs in the prior period, a $3.1 million decrease in professional fees, and a $1.9 million decrease in Other operating expense, primarily due to $2.0 million in lower contributions to the WSFS CARES Foundation when compared to the prior year.

The increase was primarily due to higher costs after the BMBC Merger.

These higher costs include salaries and benefits of $69.7 million;

net corporate development and restructuring costs of $52.2 million;

higher variable operating costs of $28.0 million, including $7.3 million from Cash Connect ® ;

and $25.1 million from equipment, occupancy, and intangibles expense.

In addition, 2021 included a previously disclosed $15.0 million recovery of legal settlement associated with Charter Oak.

We recorded $78.0 million of income tax expense for the year ended December 31, 2022 compared to $86.1 million for the year ended December 31, 2021.

The increase in income tax expense was primarily driven by an increase in income before taxes of $212.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease in income tax expense was primarily driven by a decrease in income before taxes of $57.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The effective tax rates for the years ended December 31, 2022 and 2021 were 25.9% and 24.1%, respectively.

The effective tax rate for year ended December 31, 2021 increased primarily due to higher nondeductible expenses associated with the acquisition of Bryn Mawr Trust which occurred on January 1, 2022.

Nondeductible acquisition costs of $3.9 million were recognized during the year ended December 31, 2021, whereas none were incurred in the same period in 2020.

In addition, we recognized $1.7 million in tax benefits during the year ended December 31, 2020 related to tax law changes contained in the CARES Act (see "Regulation - Coronavirus Aid, Relief, and Economic Security (CARES) Act"), related to the ability to carry back certain acquired net operating losses to prior years where the statutory tax rate was higher than the current statutory tax rate.

Further, the tax benefit related to stock-based compensation activity for the year ended December 31, 2021 increased compared to the prior year.

We recorded $0.4 million of income tax benefit during the year ended December 31, 2021 compared to less than $0.1 million of income tax expense for the same period in 2020.

The effective tax rate for year ended December 31, 2022 increased primarily due to higher state income taxes associated with the BMBC Merger.

In addition, the 2022 effective tax rate reflects the impact of the write-off of $6.7 million of nondeductible goodwill related to the sale of the BMT Insurance Advisors business.

Further, the tax expense associated with nondeductible acquisition costs in 2022 decreased compared to 2021.

Nondeductible acquisition costs of $1.8 million were recognized during the year ended December 31, 2022 compared to $3.9 million incurred in 2021.

The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, federal low-income housing/research and development tax credits, and excess tax benefits from recognized stock compensation.

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WSFS Bank, Cash Connect ® , and Wealth Management.

The WSFS Bank segment provides loans and leases and other financial products to commercial and retail customers.

The WSFS Bank segment provides loans and leases and other financial products to commercial and consumer customers.

Cash Connect ® provides ATM vault cash, smart safe and other cash logistics services in the U.S through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry.

Cash Connect ® services non-bank and WSFS-branded ATMs and retail safes nationwide.

Cash Connect ® services non-bank and WSFS-branded ATMs and smart safes nationwide.

The Wealth Management segment provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate and institutional clients.

WSFS Bank Segment

The WSFS Bank segment income before taxes increased $181.1 million, or 160%, in 2021 compared to 2020 due primarily to a $263.2 million decrease in the provision for credit losses due to positive impacts in our economic outlook from our ACL modeling and improved credit quality metrics reflecting overall declines in problem assets and delinquencies, offset by new loan originations.

The decrease in the provision for credit losses was partially offset by an increase in external operating expenses of $17.5 million or 6%, to support franchise growth, a decrease in external net interest income of $33.3 million, or 7%, and a decrease of $31.3 million, or 28%, in external noninterest income primarily due to a decrease in the realized/unrealized gains on equity investments including the gain on Visa Class B shares previously mentioned, and a decline in our mortgage business from the prior year.

The WSFS Bank segment income before taxes decreased $83.2 million, or 28%, in 2022 compared to 2021 primarily due to a $161.6 million increase in the provision for credit losses due to the release of ACL reserves in 2021 from positive economic forecasts following the impact of the COVID-19 pandemic the initial provision for credit losses of $23.5 million recorded in connection with the BMBC Merger.

In addition, external operating expenses increased $137.7 million, or 42%, reflecting the BMBC Merger.

These increases were partially offset by an increase in external net interest income of $227.9 million, or 54%.

Cash Connect ® Segment

The Cash Connect ® segment income before taxes increased to $10.2 million in 2021 from $9.2 million in 2020.

During 2021, the Cash Connect ® segment focused on expanding smart safe and ATM managed services to increase fee income and margins.

This focus on improving margin and growing on balance sheet remote cash capture volume resulted in a full-year 2021 ROA the Cash Connect ® segment of 1.68%, a decrease of 29 bps in comparison with full-year 2020.

Cash Connect ® had $1.7 billion and $1.6 billion in total cash managed at December 31, 2021 and 2020, respectively.

The Cash Connect ® segment income before taxes decreased to $7.3 million in 2022 from $10.2 million in 2021.

During 2022, the Cash Connect ® segment focused on expanding smart safe and ATM managed services to increase fee income while optimizing funding source composition and operational efficiency in the rapidly rising interest rate environment..

The interest rate environment materially increased vault operating expenses, resulting in a full-year 2022 ROA for the Cash Connect ® segment of 1.01%, a decrease of 67 bps in comparison with full-year 2021.

Cash Connect ® had $1.7 billion in total cash managed at December 31, 2022 and 2021.

At year-end 2022, Cash Connect ® serviced approximately 26,300 non-bank ATMs and approximately 7,500 retail smart safes nationwide compared to approximately 27,400 non-bank ATMs and approximately 6,300 smart safes at year-end 2021.

Wealth Management Segment

The Wealth Management segment income before taxes increased $30.7 million in 2021 compared to 2020, reflecting significant growth in our institutional trust activity and AUM growth from equity market performance, and $13.3 million of the overall $15.0 million recovery of legal settlement related to Charter Oak.

WSFS Institutional Services® ended 2021 as the securitization industry's fourth most active trustee for U.S.

ABS and MBS according to Asset-Backed Alert’s ABS Database, an improvement from sixth most active in the prior year.

The Wealth Management segment income before taxes increased $28.9 million in 2022 compared to 2021, primarily attributable to the combination with Bryn Mawr Trust and growth in our institutional trust activity.

At December 31, 2022, Wealth Management had AUA/AUM of $64.5 billion, an 87% increase from 2021 balances.

WSFS Institutional Services ® ended 2022 as the securitization industry's fifth most active trustee for U.S.

ABS and MBS according to Asset-Backed Alert’s ABS Database.

Segment financial information for the years ended December 31, 2022, 2021 and 2020 is provided in Note 22 to the Consolidated Financial Statements.

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Commercial loans and leases $ 4,350,531 $ 1,406,598 $ 320,488 $ 9,889 $ 6,087,506

$ 2,965,358 $ 1,098,580 $ 281,560 $ 11,259 $ 4,356,757

Commercial mortgage loans 2,326,449 852,280 181,065 4,115 3,363,909

1,173,254 557,367 159,057 7,051 1,896,729

Residential (2)

143,486 272,254 268,579 91,157 775,476

575,263 369,970 199,607 4,395 1,149,235

Consumer 943,251 641,895 202,348 3,451 1,790,945

Loans held for sale 47,994 1,693 2,196 1,460 53,343

134,609 1,364 1,628 109 137,710

Investment securities, available-for-sale 713,092 1,875,009 2,185,852 253,031 5,026,984

Investment securities, held-to-maturity 97,085 312,877 551,571 150,096 1,111,629

Other interest-earning assets 24,116 — — — 24,116

Total interest-rate sensitive assets:

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Trust preferred borrowings 90,442 — — — 90,442

Senior debt — 147,939 — — 147,939

Senior and subordinated debt 100,000 148,169 — — 248,169

Other borrowed funds 155,751 — — — 155,751

4 unchanged sentences

One-year interest-rate sensitive gap as a percent of total assets 6.29 %

(1) Includes reverse mortgage loans

(1) Loan balances exclude nonaccruing loans, deferred fees and costs

(2) Includes reverse mortgage loans

Generally, during a period of rising interest rates, a positive gap would result in an increase in net interest income while a negative gap would adversely affect net interest income.

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As of December 31, 2022, the Company believes that its ACL was adequate.

Business Combinations

We account for business combinations under ASC 805, Business Combinations using the acquisition method of accounting and record the identifiable assets acquired, liabilities assumed, consideration paid, and any non-controlling interests of the acquired business at fair value at the acquisition date.

The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill.

The fair values are preliminary estimates subject to adjustments during the measurement period, which does not exceed one year after acquisition.

The application of business combination principles, including the determination of the fair value of net assets acquired, requires the use of significant estimates and assumptions under ASC 820, Fair Value Measurement.

See Note 3 to the Consolidated Financial Statements.

Determining estimated fair value requires a significant amount of judgment and estimates.

If our assumptions change, or errors are determined in its calculations, the fair value could materially change resulting in an adjustment to our goodwill or identifiable net assets acquired, including identified intangible assets.

As of December 31, 2022, the Company believes that the fair value of the assets acquired, liabilities assumed, consideration paid, and any non-controlling interests of the acquired business at fair value at the acquisition date was appropriately determined in accordance with GAAP.

For information on Recent Accounting Pronouncements see Note 2 to the Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis